Tuesday, October 06, 2009

Institutions Impoverish

I find it troubling that, in our day of advanced communication and technological proficiency, that there are many areas that suffer intractable poverty. For this reason, I am looking forward to the PBS Special the The Power of the Poor scheduled to air October 8th at 10PM EST. Check your local listings. This special features the work of economist Hernando de Soto who contends that impoverished areas contain immense wealth. The problem is that the political and legal systems lack the ability for people in the area to realize the benefits of their wealth.

In the lead up to this program, the Free to Choose Network is sponsoring a blog contest asking people to answer the following question:

“What institutions can enable the world’s poor to realize their powerand achieve prosperity?”

Truthfully, I find the question troubling as I have gradually come to see "institutions" as the source of entrenched poverty. For example, the institution slavery held African Americans in abject poverty for centuries. After emancipation, the political class constructed the institution of Jim Crow laws to continue the oppression.

Many institutions have a form which concentrates benefits on an inside group while externalizing costs on outsiders. This can happen in extremely subtle ways. For example, a successful school might create a structure where its graduates hold positions of power. The graduates instinctive discriminate against outsiders based on the mannerisms that they learned in the school.

In the area of regulation, one finds that the writers of the regulations have inside knowledge which they use for their benefit and the exclusion of competitors.

Charitable Organizations often make the mistake of attempting to impose the institutions that benefited the founders of the charity on an impoverished area. Such imposed institutions can create entrenched poverty by concentrating benefits on a few at the cost of the many.

For example, well meaning efforts to extend property rights in colonial days created a landowning class and an impoverished tenant class.

Institutions are not inherently evil. Institutions create benefits for some, and costs for others. By understanding the nature of institution one realizes that the internal make up of a group is less important than the relation between the community at large and its constituent institutions.

In this last decade, I have been engaged in the Community Color project. This project involves a detailed examination of organizations in select communities of the American Mountain West.

What astounded me was the diversity of organizations that exist within each of the studied communities. This leads directly to the conclusion that a strong community has people engaged in numerous efforts that provide benefits at different levels.

Rich societies have a complex relation with institutions. This relation allows multiple groups to exist with the community. This multiplicity can help societies created by efforts that concentrate benefits on some at the cost of the many. So, an institution might concentrate benefits on a group. Those excluded would counter by creating a competing institution.

In a rich society, there is an ongoing influx of new organizations. Old organizations often diminish with time and disappear. It is this process of institutions evolving within the community that creates the wealth of the people.

Attempts to impose institutions on a society often destroy the natural evolutionary process within a society. The imposition of institutions creates a world of haves and have-nots. The answer to poverty is an internal change to a given organization but an overall change in the relation of the community that allows the evolution of diverse constituent institutions.